Art Talk is a series of rotating columns which explore current issues in the art market.

Limits of Ownership 1
    · Limits of Ownership 2
    · Statute of Limitations
    · The Discovery Rule
    · Nazi Confiscated Art
    · Abandoned Property
    · Taxation



an excerpt from
by Aaron Milrad

Tax can take many forms. There may be a tax on income, on the gain from the sale of a capital property, on gifts of valuable property made during one's lifetime, and on bequests made from one's estate. In addition, there are direct and indirect taxes, by different levels of government, on various goods and services.

This chapter restricts itself to the tax consequences in Canada, the United States, and Mexico of the gifting of art and art objects, primarily for charitable purposes, during the lifetime of the donor or by his or her estate. It deals with the general concepts employed by the federal governments of the three countries to encourage donations through tax benefits and to restrict those benefits by specific rules and regulations(1).

There are numerous excellent tax texts available to readers who wish more tax information (2), and professional tax advisors may be consulted for specific advice. As taxation rules and regulations change frequently, this discussion will not deal with specific tax rates or with the intricacies of making donations and the instruments used for such donations. Sadly, much tax legislation is political in nature and changes with the political party in power and its political agenda; often exceptions are built into the taxing statutes, both in Canada and in the United States, because of political pressure. The only constants are that governments require money, and taxation is the way money is raised(3).

Historically, most museums and public institutions have received their finest works through donations of collections from both the rich and famous and the not so rich and not so famous. Often the donations are made, at least in part, for the tax benefits available to the donor. Rarely, however, will a donation of an important object at fair market value net the donor as much as if the work had been sold at fair market value, even after a capital gains tax has been applied, as most tax rates are fifty percent or less and the after-tax benefit of a donation would be less than the funds received from a sale at the same fair market value. Therefore, altruism is as vital to the concept of a donation as are any tax benefits. Whether a donor's impetus is social standing or a genuine desire to share the works with the designated institution, its members, and the general public for the greater good, any tax regime that does not recognize the benefit to the community of such donations is short-sighted and ultimately harmful to the nation it serves.

Unfortunately, taxing authorities rarely have an understanding of aesthetics and culture, which gives rise to frustration, both in the arts community and in the taxing authorities. Moreover, from time to time there are those who wish to abuse the system by using tax loopholes, which are subsequently attacked by the taxing authority, often resulting in ill will toward the cultural communities. Overall, however, donors of art objects make a major contribution and enhance both the culture and the cultural history of nations for the benefit of all.

About the Author

Aaron M. Milrad is a member of Fraser Milner, Barristers & Soliciters, a Canadian national law firm headquartered in Toronto. At Fraser Milner he provides specialized legal services to clients across Canda, the United States, and other countries who are involved in the visual, performing, and literary arts, music, publishing, media, and mutlimedia. Mr. Milrad also provides consulting services, including strategic planing and marketing for creators, companies, nonprofit organizations, and foundations and tax estate planning for creators, collectors and arts professionals.

To purchase a copy of Artful Ownership, please contact:
American Society of Appraisers, International Headquarters, 555 Herndon Parkway, Suite 125, Herndon, VA 20170

Author's Notes
Note from the Editor

ISBN 0-937828-03-3

Copyright © 2000 by the American Society of Appraisers and Aaron M. Milrad.

All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form by any means, electronic, mechanical photocopying, recording or otherwise, without the prior written permission of the American Society of Appraisers, P.O. Box 17265, Washington, D.C. 20041. (800)272-8258

Printed in the United States of America.

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